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LOU DOBBS MONEYLINE

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Aired June 4, 2002 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: This is LOU DOBBS MONEYLINE for Tuesday, June 4. Here now Lou Dobbs.

LOU DOBBS, HOST: Tonight, Congress opens its investigation into the worst intelligence failure since Pearl Harbor. President Bush says there is no evidence that the government could have stopped September's terrorist attacks. We will have the very latest for you from Washington.

It is called the war against terrorism, but who are we fighting? A special report tonight on a war against global radical Islam and political correctness?

Both sides rest on the Andersen criminal trial, and we're one step closer tonight to a verdict. We'll have the latest for you from Houston as closing arguments are set to begin.

And the White House is releasing thousands of documents related to Enron. John King, senior White House correspondent, will have the story from the White House.

And the plaintiffs' bar to trying to squeeze millions of dollars out of a new target, the food industry. Those attorneys claim this litigation is for your own good.

Good evening.

First tonight, Congress is asking the intelligence community exactly who knew what and when, and, more importantly, why did crucial, critical intelligence slip through the cracks leading up to September 11?

Jonathan Karl joins us from Capitol Hill and has the story for us -- Jonathan.

JONATHAN KARL, CNN CORRESPONDENT: Well, Lou, just a few minutes ago, the meeting broke up. This was the first meeting of the joint intelligence committees of the House and Senate looking into the intelligence failure of September 11.

We've learned that the meeting, which was held in a super secretive room called S-407 in the Capitol Building -- that the meeting started with a moment of silence for the victims of September 11. And then they essentially got underway with a bit of housekeeping.

This is an investigation that started back in February, forming a staff of 24 intelligence professionals interviewing more than 200 people with information about what happened on September 11 and what didn't happen in terms of intelligence gathering.

So what this -- basically, they've been starting to do is simply getting briefed. These professional committee staffers briefing the members of the committee for the first time today.

But, while this was all going on, at the White House, you had the president today coming out and criticizing Congress, warning Congress not to get carried away with investigations, saying, "Don't do too many investigations because you don't want to take away manpower from the ongoing effort to prevent a future terrorist attack."

That provoked response here from Republicans and Democrats. Republicans very much agreeing with the president and Democrats disagreeing. Here's what Trent Lott and Tom Daschle had to say.

(BEGIN VIDEO CLIP)

SEN. TRENT LOTT (R-MS), SENATE MINORITY LEADER: If our intelligence committee spends all their time going to a whole variety of committee hearings on both sides of the Capitol, they won't have time to do anything about reorganizing the FBI, making sure the CIA communication with the FBI is better or vice versa. They'll all be up here answering questions about the past instead of taking steps to make sure that we do a better job in the future.

SEN. TOM DASCHLE (D-SD), SENATE MAJORITY LEADER: If the FBI can spend resources investigating whether there's prostitution in New Orleans, they ought to be able to find the resources to investigate what happened in this country prior to 9/11. It seems to me that that is an excuse that just doesn't hold water.

(END VIDEO CLIP)

KARL: Now the intelligence chairman of the Senate committee, the Intelligence Committee in the Senate, Bob Graham described this as a three-act play, Lou, this whole hearing process.

He said the first act is simply what happened, trying to find a factual time line that will actually go all the way back to 1986 when the CIA first established its counter-terrorism center all the way through September 11 and after.

Then, after they get done with act one, that factual time line, act two will be what it all means, what -- where the weaknesses are, what fell between the cracks, what miscommunication was done between the various agencies, what leads were not followed up.

And then, act three. They will finally get to what do they do about the future, what does this all mean in terms of preventing a future attack and improving, perhaps restructuring the FBI, the NSA, the CIA. Now, Lou, two figures that you may see more and more of in the coming weeks and months that will -- have been up here on Capitol Hill, at least one of them -- the first is the former director of the CIA -- I'm sorry. I'm sorry. I'm getting a wrap.

You'll see more -- not just simply Robert Mueller, the FBI director, and the director of the CIA, but also some of those second- and third-tier individuals at both agencies will be brought up here to testify about what they knew and how they did not connect the dots -- Lou.

DOBBS: And because much of this investigation will take place in the very secure Room 407 in the Senate building, it's likely we'll never know precisely what the results of this investigation is. Is that correct, Jon?

KARL: Well, there will eventually be public hearings, and this committee is supposed to produce a report by February of next year. But you're absolutely right that many of these hearings will be taking place far outside of the range of our television cameras.

DOBBS: Jonathan Karl, thank you.

President Bush says no matter what Congress finds during these investigations, it should not take attention away from the broader war against terrorism. And, today, President Bush made that point during a trip to the National Security Agency.

White House correspondent John King joins me from the White House with more -- John.

JOHN KING, CNN CORRESPONDENT: And, Lou, this President Bush, the first president to visit national security headquarters, Fort Meade, Maryland, since his father, former President Bush, visited just after the end of the Persian Gulf War.

That agency charged with global eavesdropping, a critical role, of course, as the United States now tries to track al Qaeda, tries to prevent future terrorist attacks. Mr. Bush saying that should be the focus of the intelligence community and the law-enforcement community.

The president today, as those hearings Jon Karl just discussed, got underway on Capitol Hill, laying down a marker, some might say a warning. Mr. Bush saying he is fine with the investigation being conducted by the joint intelligence committees, but he says that should be it, one investigation in Congress and no more.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I want the Congress to investigate, but I want a committee to investigate, not multiple committees to investigate, because I don't want to tie up our team when we're trying to fight this war on terrorism.

(END VIDEO CLIP) KING: Mr. Bush also conceding very candidly in that conversation today that, yes, the FBI and the CIA were not discussing things properly, not sharing information, not sharing clues about the terrorist threat prior to September 11.

But Mr. Bush giving a vote of confidence to the CIA Director George Tenet and the FBI Director Bob Mueller saying both are now sharing information. Mr. Bush saying they should testify before Congress, but he says he doesn't want them going up to committee after committee after committee because they are on the front lines in the war against terrorism -- Lou.

DOBBS: John, the decision to turn over the documents -- where are we with that in the Enron request from the Senate?

KING: Lou, we have just learned moments ago that within the past hour, this White House failing to reach an agreement with the Senate committee chaired by Senator Joseph Lieberman, the Senate Government Operations Committee, under the pressure of subpoena, has turned over more than 1,745 documents, we are told, from the executive office of the president, another 460-plus documents from the office of the vice president.

The White House had allowed Senate staffers to review those documents here on the White House campus. Those documents, though, in the past hour sent, again against the administration's wishes, up to Capitol Hill. It did not want to fight over subpoenas. It was unable to reach an agreement with that committee over how sensitive information like e-mail addresses, like Social Security numbers, should be handled.

The White House saying it hopes now the committee will deal with those documents in a thoughtful manner, not on a partisan fishing expedition -- Lou.

DOBBS: And in support of that, the Senate committee, we should point out -- and, John, correct me on this if this is not precise -- those documents include a decade-long period from 1992 through January of 2002.

KING: That is right, and this administration saying, yes, Enron called this administration and previous administrations for regulatory and other help. The Bush administration saying all the documents that cover its time in office will show, when the committee looks at them, that, in view of this White House anyway, no one did anything wrong.

DOBBS: John King, as always, thank you.

Civil rights groups file lawsuits against four major airlines today. These lawsuits say the airlines removed five men from flights on September 11 simply because they looked Middle Eastern. The plaintiffs claim to be victims of racial profiling, and they're seeking unspecified damages. The airlines being sued are Continental, American, United, and Northwest.

The United States tonight remains on alert for the possibility of more terrorist attacks. The insecurity felt by many Americans has led to a new language to describe the enemy. The White House does not use the phrase "suicide bombers." It prefers instead "homicide bombers," An expression that has so far not caught on.

As Kitty Pilgrim now reports, scholars have another definition for these potential terrorists.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Trying to define the threat of terrorism, the White House tried out the term "homicide bombers."

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: These are not people who just kill themselves. These are people who deliberately go to murder others with no regard to the values of their own life. These are murderers.

PILGRIM: Terrorism experts say both state-sponsored terrorists and terrorist cells can be grouped generally into what is known as radical Islam, or the Islamist movement.

ROY GODSON, GEORGETOWN UNIVERSITY: They do vary from place to place. In some places, they're concerned with the United States. In other places, they're much more concerned with Israel. They use the word "Islamist." They -- they're not insulted by that word. They regard that as they believe in political Islam, radical political Islam.

PILGRIM: In Afghanistan, the war against al Qaeda. In the Philippines, U.S. special forces are aiding in capturing radical Islamic group Abu Sayyaf. In the Middle East, a fuselage (ph) of suicide bombs of Hamas and Al Aqsa Martyrs Brigade.

The U.S. have forces in Yemen hunting al Qaeda after the bombing of the USS Cole. In Sudan and Somalia, U.S. forces are patrolling the coast to detect al Qaeda trying to regroup. In the former Soviet Republic of Tajikistan, commandos are stationed to fight Taliban elements.

Current tensions in Kashmir again stirred up by attacks of radical Islamic groups.

FRANK GAFFNEY, CENTER FOR SECURITY POLICY: Islamism is an extremist view of Muslim theology that basically has as its principle there is no god but Allah and Muhammad is his prophet, and anybody who doesn't accept that must die. This is really, I think, the character of the problem we're faced with now among Islamists who will kill us.

(END VIDEOTAPE)

PILGRIM: And many make the point that compared to the billion people or more who practice the Muslim faith, Islamists are a tiny percentage. They have very little to do with the mainstream religion. But it's the distortion of the teaching of Islam that makes Islamists believe that they have a higher purpose than just homicide -- Lou. DOBBS: These scholars, these experts you talked with, they are basically saying that the war against terror, which is styled for political correctness, could be as well styled a war against Islamists?

PILGRIM: That's right, and in fact -- but there is a certain hesitancy to use a term like that because of the worry that it will paint all people who practice the Muslim faith with the same brush, and so there's this hesitancy to use words like "Islamist."

DOBBS: If Islamists are a radical fundamental element of what is Islam, there shouldn't be any confusion, should there?

PILGRIM: No. And in fact -- in fact, people who really study this make no -- have no problem with using the term "Islamist." It seems the mainstream public has a worry about using things like that.

DOBBS: Perhaps those who are in front of the mainstream public, as you put it, have that worry.

Kitty, as always, thank you.

Arch enemies India and Pakistan sat in the same room for the first time in six months today. Indian Prime Minister Atal Vajpayee and Pakistani President Pervez Musharraf attended a security summit in Kazakhstan, but they did not talk to one another.

Vajpayee says he wants proof that Musharraf is putting an end to cross-border attacks before he'll talk with the Pakistani president. President Musharraf told CNN that launching a nuclear attack is, quote, "unthinkable" and said a third party should judge whether Pakistan is fulfilling its promise to crack down on terrorism.

(BEGIN VIDEO CLIP)

PERVEZ MUSHARRAF, PAKISTANI PRESIDENT: We in Pakistan refuse to accept this -- the Indian claim of being the accusers as well as the judges. If they are the accusers, let there be somebody else act as the judge.

And we would very much be interested in the United Nations military operations group operating in India and Pakistan to undertake this mission or to expand them and let them patrol the line of control and speak the truth.

(END VIDEO CLIP)

DOBBS: Russian President Vladimir Putin tried unsuccessfully to get Musharraf and Vajpayee to speak today -- to speak to one another. Putin later extended an invitation to meet with them separately in Moscow. Both men accepted.

Coming up later in this broadcast, I'll be talking with Maleeha Lodhi, the Pakistani ambassador to the United States.

CIA Director George Tenet today was shown plans for a radical overhaul of Palestinian forces. Tenet was given the proposals after arriving at Arafat's headquarters in Ramallah, with tight security, of course.

That plan would streamline the Palestinians' nine security agencies into only three. Israel believes it would enable Arafat to better control his security forces and to make it easier to stop suicide bomb attacks.

On Wall Street today, a volatile session. More companies under investigation for alleged wrongdoing. One broker called the current environment a perfect storm for stocks. The Dow fell 22 points, at the close 9,687. The NASDAQ closed up 15 points. The S&P 500 ended the day all but unchanged. We'll have, of course, with Jan Hopkins, a lot more on the market.

Also later in the broadcast, we'll have a special report for you on the lawsuits now facing food makers, and that is the topic of tonight's MONEYLINE quick vote. Tonight's question: Should food manufacturers be held responsible for weight problems of Americans? Cast your vote at cnn.com/moneyline. We'll have results for you later in the broadcast. And, of course, I'll be paying particular attention.

Still ahead, more shelling on the India-Pakistani border as the United States, Russia, and China try to resolve the crisis. Pakistan's ambassador to the United States, Maleeha Lodhi, will be my guest.

Both sides resting their case in the Andersen obstruction of justice trial. We'll have a live report for you from the courtroom in Houston, Texas.

That and the battle over the nutritional value of junk food. Attorneys see big fees ahead as they work in the interest of their overweight clients. Stay with us.

(COMMERCIAL BREAK)

DOBBS: As we reported to you earlier, the leaders of Pakistan and India sat across the same table today for the first time in more than five months, but they barely acknowledged one another at the security conference in Kazakhstan, and they did not even speak to one another. Russian President Vladimir Putin has now invited both men to Moscow for talks. They have accepted.

For Pakistan's perspective on this crisis, I am joined by the Pakistani ambassador to the United States, Maleeha Lodhi.

Ambassador, good to have you with us.

MALEEHA LOHDI, AMBASSADOR OF PAKISTAN TO THE UNITED STATES: Thank you.

DOBBS: This meeting between Musharraf and Vajpayee that has resulted at least with Vladimir Putin's invitation and both men going to Moscow -- do you see this as progress or a hopeless sign for any resolution of this crisis?

LOHDI: Well, to the extent that the two leaders have somebody to talk to and talk through, I think we welcome. But I am afraid we have seen no indication that India has shed war as an option.

I think, when you look at what happened in Kazakhstan today, it seems to be a missed opportunity, and the situation in the subcontinent remains fraught with a great deal of danger.

Focus now is, of course, on U.S. Deputy Secretary Richard Armitage's visit to the region, and, of course, we in Pakistan welcome any effort to politically and peacefully resolve this crisis.

But we have not seen any reciprocity on the Indian side. We haven't seen India respond to the call of the international community, which is a call for restraint, for stepping back from the brink.

So I think we are still in a very precarious situation.

DOBBS: Ambassador, the Indians, it could also be said, have exercised extraordinary restraint after the attacks on their parliament. They have also said very clearly that they will be constrained and will discuss matters of mutual interest once the terrorism stops in their judgment, and President Pervez Musharraf assures them that that will continue. What do -- what is your response?

LODHI: Well, there are two things here. First of all, I think we all know that this dangerous situation in South Asia has been created by an unprecedented military buildup by India. That in itself makes it inherently dangerous for the two South Asian neighbors because we have over a million troops on a very long border between Pakistan and India.

We don't think in Pakistan that this is the way to resolve differences. We believe that differences ought to be resolved by peaceful means and by diplomatic and political means.

Now, as for preconditions that India continuously and repeatedly sets on Pakistan, we in Pakistan have taken certain actions because we believe that restraining militancy, fighting terrorism is in our own supreme national interest.

As you know, Lou, we have been in the forefront in fighting in part -- as part of the global coalition against terrorism on our western border. We have been in the forefront fighting al Qaeda, and we have been fighting terrorism in many ways.

Now, at the same time, we do need the Indians to step back from the kind of war rhetoric that they've been engaged in and from the kind of military brinkmanship and military blackmail that they have been engaged in. We don't think that's a real responsible way to act.

We also think that if India has allegations, we have offered the placement of a neutral, impartial mechanism on the line of control between Pakistan and India so that these allegations can be independently verified. Now every time we make an offer, India says no.

My president in Kazakhstan offered unconditional talks to India, and India again said no. How many times are we going to hear no from India, and how -- how much more does the international community need to do in order to make sure that India agrees to a peaceful resolution of this crisis?

I think what this crisis underscores is the need for the international community to come in not just for crisis management but to also resolve the underlying source of the tensions, which is the long-standing, unresolved dispute over Kashmir.

DOBBS: And a role for the United States, Ambassador?

LODHI: Well, the United States is today the world's primary part (ph), and it has an enormous stake in what's happening in South Asia, not least because the war against terrorism, against al Qaeda could possibly be hampered by the fact that my country, obviously, has to put its own national security as its top priority and, therefore, has to look eastward as we confront, as I told you before, an unprecedented military buildup by India.

We believe it's time to step back from the brink. We also believe that time and history has shown that the international community needs to do more. It shouldn't just come in for crisis management. It should be there to help the two countries resolve their differences so that the subcontinent can have peace and security and the over one-billion people who reside in South Asia have a brighter and better future in front of them.

We in Pakistan are committed to this vision. We'd like to see the other side match our various steps that we've taken.

DOBBS: Ambassador Lohdi, thank you very much. We appreciate your taking the time.

LODHI: Thank you.

DOBBS: Coming up next here, the Andersen trial enters its final phase. The defense has rested. We'll have the latest on the Andersen trial from Houston.

And firefighters are struggling to control the worst fires in Southern Colorado. The worst fires in decades. We'll have that story for you and a lot more still ahead. Stay with us.

(COMMERCIAL BREAK)

DOBBS: This afternoon, the defense rested in the Andersen trial in Houston after portraying the embattled accounting firm as an innocent victim of overzealous government prosecution. The final defense witness admitted that he, too, destroyed some documents last fall. He says he was doing so -- that all that he did was totally appropriate.

Peter Viles has the report for us from Houston. (BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): The Andersen defense rested after testimony that in some ways captured the essence of the 23-day trial, an Andersen partner who admitted that he, too, destroyed some documents last fall but saw absolutely nothing wrong with that. The witness was John Riley, the high-ranking partner flown into Houston last fall to help clean up the Enron mess.

A point for the government on cross examination, Riley again said document destruction at that time raised questions. Quote, "I think that because of questions surrounding the company, it would be a bad time for people to be going back and destroying a lot of documentation."

There's no question that happened last fall at Andersen's Houston office. The core of the Andersen defense? It was innocent bad judgment, an effort to clean up the Enron files, not to hide anything from the government.

So Rusty Hardin pressed Riley on the issue, and Riley delivered. Quote, "It would have been appropriate to continue to discard, destroy, shred, whatever, confidential client information that was unrelated to the issues at hand." In fact, Riley acknowledged he did just that himself, discarding drafts of meeting agendas and talking points he worked on last October.

The jury will soon have this unusual case, unusual because Andersen is fighting not so much for its life or for its future but for its legacy. By all accounts, the firm is dying and hoping to die true to the legacy of its founder. When Arthur Andersen himself died in 1947, the eulogy said in part, "Wherever the name of Arthur Andersen and Company is known, it is equivalent to integrity and honesty."

(END VIDEOTAPE)

VILES: Now, for the government, the stakes are quite high as well. The choice to indict Andersen crushed the firm, destroyed thousands of jobs. Anything less than a conviction here in Houston, that choice by the Justice Department will be called sharply into question -- Lou.

DOBBS: Pete, this has been a remarkable period, as you've covered this trial for four-and-a-half weeks. The next step?

VILES: First thing tomorrow morning, there's one more piece of evidence that will come in. We don't know who's introducing it -- the defense or the government.

Then Judge Melinda Harmon will instruct the jury. That will take about 30 minutes. We have a second draft of her instructions. A third draft will be written after she finishes with the lawyers. They're haggling right now.

Then closing arguments. Both sides have said they will need about four hours in total. First the government. Then Andersen. Then the government gets a rebuttal. That would be eight hours of argument. I don't think the jury has the patience for that. I think the lawyers know that. We hope for less than eight hours of arguments tomorrow.

Then the jury gets the case.

DOBBS: And I suspect more than one or two reporters are hoping for a somewhat less period of time for those closing arguments as well, Pete.

Thanks a lot.

Peter Viles from Houston.

Coming up next, former Tyco CEO Dennis Kozlowski is accused of trying to avoid more than a million dollars in sales taxes.

And more than half of all Americans are overweight. Now attorneys see large fees in the fact. We'll have the details.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: These are some of the stories we're following tonight. New travel warnings for Americans in India and Pakistan. The U.S. State Department urging U.S. citizens to leave the two countries as tensions between the nuclear powers intensify.

Congressional hearings today began into intelligence failures before September 11. President Bush acknowledged that mistakes were made, but he said too many investigations would detract from the war against terror.

Both sides have now rested their cases in the Andersen trial. Closing arguments could begin as early as tomorrow. And the case of course, then to the jury.

Meanwhile, the White House is releasing thousands of Enron- related documents to Congress. The Bush administration had missed two deadlines before deciding to release those documents.

An extremely volatile session on Wall Street today. The Dow recovered early losses, only then to fall. While the Nasdaq managed to close with a modest gain. Jan Hopkins following the market. Quite a choppy session, Jan.

JAN HOPKINS, CNN CORRESPONDENT: That's right. That broker described the perfect storm. The cross-currents of the market are actually treacherous, Lou. One minute investors see signs of encouragement. The next, they see only things that make them nervous. And the prices move according to the mood swings.

At the end of the session, the Dow was off .25 percent. The Nasdaq ended with a gain, up 15 points. That was a percent gain. The S&P eked out just the smallest of gains. Christine Romans at the New York Stock Exchange and Greg Clarkin at the Nasdaq with movers -- Christine.

CHRISTINE ROMANS, CNN FINANCIAL NEWS: Well, Jan, we had Tyco here, the most active stock today, up 4 percent. But still 72 percent below its 52-week high. Bristol-Myers falling 4 percent, 29 states alleging it illegally blocked generic rivals to its cancer drug, Texol. For GM, it was the seventh day of losses. AOL Time Warner tumbling 5 percent after Lehman's Holly Becker cut her revenue outlook. And IBM rose more than a dollar. It plans a pre-tax charge of $2 billion to $2.5 billion, most likely in the second quarter.

And late today, the federal energy regulatory commission said it may revoke the power trading licenses of four companies, including Williams and El Paso. Watch those tomorrow.

Now to the Nasdaq and Greg.

GREG CLARKIN, CNN CORRESPONDENT: And, Christine, there was a seesaw session here at the Nasdaq. Among the largest percentage losers: Flextronics. The company issued a profit warning saying that weak demand for its electronics components remains, and the stock was hammered today, down 2.43 on the day.

Night trading, that's the biggest market maker on the Nasdaq. The "Wall Street Journal" reports that the company is under an SEC investigation for improper trading practices. The company denies the allegation, but the stock was hammered today.

BEA Systems, they signed a big software contract with Cingular Wireless and that gave shares a boost. And software overall rebounded from yesterday, a sharp sell-off. Microsoft and Oracle gained on the day. But that rally in software may not last all that long after the close of trading today. The business software firm Manugistics warned that their revenue would be far below expectations -- Jan.

HOPKINS: Thanks, Greg. When you look at a chart of what happened during the day, you can see what we mean by volatility. First, investor confidence was tested by a probe of trading at night and the indictment of former Tyco CEO Dennis Kozlowski.

Then a technology rally takes hold, which brings along the Dow for a while. Eventually those gains evaporate, but by the close, another attempt for a rally. The Dow, though, closes at a four-month low.

Volatility could be a sign of a turn in the market. But the question is, which direction is it turning? Barton Biggs, a longtime bear from Morgan Stanley just turned bullish. He told clients that he thought it was time to start buying the U.S. stock market.

On the other hand, gold prices continue to rally. Today they hit a four-and-a-half year high. So it's really hard to figure out.

DOBBS: Well, that's what makes the market so much fun. Well, not so much fun these days. Jan, thanks a lot. HOPKINS: Thanks.

DOBBS: Just days after stepping down as chairman and CEO of Tyco, Dennis Kozlowski was indicted for avoiding more than $1 million in sales taxes. Kozlowski was credited with building Tyco into a $100 billion conglomerate, and he presided over the company during its stunning decline, as well.

Fred Katayama has the story.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): A red-faced Dennis Kozlowski left the courthouse after he was charged with evading more than $1 million in sales taxes. Earlier, prosecutors outlined how the former Tyco chairman avoided paying taxes on at least six paintings worth more than $13 million.

ROBERT MORGENTHAU, MANHATTAN DISTRICT ATTORNEY: For somebody who was highly paid to fail to pay over $1 million in sales tax is a serious crime, and will be treated seriously. And I think over the years, there's been too much winking at this kind of activity.

KATAYAMA: The deal maker who built Tyco into a conglomerate allegedly conspired with gallery executives and consultants, shipping some artwork to the company's office in New Hampshire to avoid paying New York city and state taxes. Tyco employees were directed to sign the receipts, then the paintings were returned to Kozlowski's New York apartment.

In another case, he allegedly directed an art consultant to ship empty crates to New Hampshire instead of a Monet and four other paintings, to make it look like they had been sent out of state.

MARK LIMARDO, TAX ATTORNEY: What struck me as a little bit unusual in this case was the fact that there seemed to be a lot of activity on the part of the accused here.

KATAYAMA: Prosecutors charge Kozlowski with conspiracy, failure to collect sales tax, falsifying business records, and tampering with physical evidence. Kozlowski pleaded not guilty. He was released on a $3 million bond.

Prosecutors say he borrowed money from Tyco to buy some of the artwork and paid it back without interest. A Tyco spokesman said the company is conducting an internal probe.

(END VIDEOTAPE)

Prosecutors say they're continuing with their investigation. Asked if Tyco itself is a subject of their probe, the district attorney would only say, we'll go where the facts lead us, we don't think Dennis Kozlowski is the only person involved in the transactions -- Lou.

DOBBS: OK, Fred, amazing. Fred Katayama, thank you. A quick reminder. We want your opinion in tonight's MONEYLINE quickvote. The question tonight is: should food manufacturers be held responsible for the weight problems in this country? Log on to cnn.com/moneyline to cast your vote. Again, cnn.com/moneyline. Should food makers be held responsible for the weight problems of Americans? We'll have the results later in the broadcast.

Still ahead, the United States tells Yasser Arafat to reform his security forces. The Palestinian Authority's legal adviser will be here to tell us.

And the flooding disaster that's left almost half a country underwater. Details of that and lots more, next.

(COMMERCIAL BREAK)

DOBBS: As we reported earlier, CIA Director George Tenet and Palestinian leader Yasser Arafat today met. They talked about plans for a radical overhaul of the Palestinian security forces. But Israel is also demanding sweeping reforms that could curtail Arafat's power. And it wants an end to suicide bomb attacks, of course.

Joining me now from Washington is the Palestinian Authority's legal adviser, Amjad Atallah. Good to have you with us.

AMJAD ATALLAH, PALESTINIAN AUTHORITY LEGAL ADVISER: Thank you for having me.

DOBBS: The idea of reducing the number of security forces from nine to three, is that, in your judgment, an effective and wise thing to do?

ATALLAH: Well, as a matter of fact, I think that Palestinians themselves have been hoping for these types of changes in the Palestinian Authority security system, in order to benefit Palestinians better. In order to provide better security for Palestinians, as well as for Israelis.

But there's another side to this coin, which is that simultaneously, Israelis are supposed to be providing the Palestinians with greater and greater freedom. Instead what we've seen, especially over the course of the last months, is the exact opposite.

DOBBS: And within that period of time, we have also seen a number of suicide bombings. We have seen an escalating round of violence. Now with these reforms, Amjad, the Palestinian Authority has also extended an invitation, Yasser Arafat reaching out to Hamas, Hamas rejecting his overtures.

Where do you think that effort at inclusion and trying to bring more consolidation and unity will end?

ATALLAH: I think it depends a lot on the political process. If there's a political process that Palestinians can see, we'll have a visible end that will end the occupation, that will provide the Palestinians with freedom. Co-option into the system is a much more attractive element.

However, if Palestinians look and see that there's no hope, there's no political process, it's the same with the Israeli public. The Israeli public and the Palestinian public both believe that there ultimately has to be a negotiated solution.

However, that negotiation process has to be created. And they need to see it, and they need to see an end result to it.

DOBBS: Israel will build its fence. Nearly everyone in the Israeli power structure wants it. What is the Palestinian response?

ATALLAH: Basically what the Israelis are doing is creating Palestinian ghettos. They're building barbed-wire fences around Palestinian villages and towns.

I just came from Ramallah a few days ago. And as you're driving to the airport, you can actually see the fences, made of shining barbed wire, surrounding Palestinian villages and towns. Now, the Israeli attempt to steal more and more Palestinian land, the attempt to create these Palestinian ghettos, is very similar to the suicide bombings. You notice that they occur at moments of diplomatic initiatives.

Right now, the United States is moving in the direction of providing a political process; of restarting a political process. You see a consensus among the international community. You see the Arab countries, all 22 Arab countries, offering normalization with Israel, once it evacuates the occupied Arab territories.

And, in response to these diplomatic initiatives, the Israelis are cordoning off the Palestinian territories, creating cantons. In fact, the Palestinian ghettos are similar to the Jewish ghettos that existed in Europe, in the 1800s.

DOBBS: Amjad Atallah, we thank you very much for being with us here on MONEYLINE.

ATALLAH: Thank you.

DOBBS: Coming up next, junk food being blamed for making Americans more overweight than ever, if not outright fat. Big food companies disagree. The attorneys are delighted to broker the answer in court. That story, coming up.

(COMMERCIAL BREAK)

DOBBS: Well, there is a legal battle brewing. Attorneys, the plaintiffs' bar, lining up against big food the way they did against big tobacco. Their object this time: a ban on all junk food and a fatter bank account for all concerned. Casey Wian has the story from Los Angeles.

(BEGIN VIDEOTAPE)

WEIRD AL YANKOVIC, SINGER (singing): The word is out, better treat me right, because I'm the king of cellulite...

CASEY WIAN, CNN CORRESPONDENT (voice-over): Americans are fatter than ever. The surgeon general says the number of adults who are either overweight or obese has doubled to 61 percent since 1980. Adolescent obesity rates have tripled.

It's no wonder Krispy Kreme's stock has nearly quadrupled since the donut maker went public two years ago. The government says obesity kills 300,000 people and costs $117 billion each year. And whose fault is that?

JOHN BANZHAF, GEORGE WASHINGTON UNIVERSITY: I think the fast food manufacturers, like tobacco manufacturers, should bear some of the responsibility, some of the liability, for the death and disability which is caused, even though the smokers and the overeaters obviously bear a large share.

This is particularly true as in the cases we're bringing, where the manufacturer deliberately misrepresented what was in his food, or misrepresented the calories or fat content. Because people can't make reasonable decisions if somebody is lying to them about what's in the food.

WIAN: Banzhaf says that's only a start, and if the government doesn't crack down on junk food makers, an army of lawyers will. Four class-action lawsuits have been filed against McDonald's, Pizza Hut, the maker of Pirate's Booty snack food, and a Florida ice cream company. All are for allegedly misrepresenting the fat type or content of their products.

(on camera): Already, 18 states tax either soft drinks or junk food, raising a billion dollars a year. California and Texas are trying to eliminate junk food from their schools.

(voice-over): Food manufacturers scoff at the comparison to tobacco.

LISA KATIC, GROCERY MANUFACTURERS ASSOCIATION: No two things could be more different. It really is about both food and physical activity. We are more sedentary today than we ever have been. We work longer hours than we ever have, which further contributes to our sedentary lifestyles.

WIAN: The issue does have Washington's attention. Appropriately, the chairman of the subcommittee holding hearings on obesity is the amply-waistlined Senator Ted Kennedy. Casey Wian, CNN Financial News, Los Angeles.

(END VIDEOTAPE)

DOBBS: And it's just coincidental that I happen to be here right after that report.

Let's take a quick look at the results of our MONEYLINE poll. The question: should food manufacturers be held responsible for the weight problems of America? Well, twenty-six percent of you said yes. Seventy-four percent voted no. And it's just another one of the reasons that I say the audience of this broadcast has more intelligence than any other in television.

Americans, of course, like to eat junk food. And for now, at least, making it and eating it is unbelievably legal. Attorney Philip Howard says it is absurd that these lawsuits are even allowed to proceed. Philip Howard is the author of "The Collapse of the Common Good." He joins us now from Washington.

Philip, good to have you with us.

PHILIP HOWARD, AUTHOR, "COLLAPSE OF COMMON GOOD": Good afternoon.

DOBBS: I have to say, the idea that these food companies would be held responsible for obesity is utterly remarkable, don't you think?

HOWARD: It is. I mean, you can make up a theory for anything and file a lawsuit today in America. I mean, shouldn't they sue alcohol first? And then maybe we could go to ice cream. Ice cream is much worse for you than McDonald's hamburgers. I think, clearly, the ice cream manufacturers ought to be sued.

DOBBS: It is obvious that the plaintiffs' bar is absolutely serious here. They are going after them, aren't they?

HOWARD: They are going after them. But I think we're near a tipping point. Because Americans are starting to wake up that this is not about -- all these lawsuits are not about doing justice. What they are is about some zealots and some greedy lawyers who, we're beginning to learn, can make up a theory for anything.

DOBBS: Well, the theory in this case is perilously close to just madness. That a company should be held responsible because someone doesn't know that a donut could add a little to your waistline, that French fries would be fattening. This is really straining the utter limits of -- the utter and outer limits -- of reason.

HOWARD: Well, it is. We actually do have a process. If something were really bad for you, we elect a Congress, and they could, in a democracy, appropriately pass laws. I think there would be a revolution if they tried to ban fast food. But they have the power to do that.

But certainly, one zealous plaintiff, or a group of greedy lawyers shouldn't have the power through a lawsuit to boss around the rest of society.

DOBBS: Why in the world don't these judges just throw these cases out the second these greedy people bring them?

HOWARD: Well, what's happened in America -- this is what my book is about -- is that judges lost the idea that they're supposed to decide who sues for what. The role of law isn't to let anybody sue for anything. The role of law is about the opposite. It's about deciding who can sue for what. And judges no longer do that. And that's the reason we've started this movement, to change our legal philosophy.

DOBBS: Philip Howard, as always, thank you, sir.

HOWARD: Thanks, Lou.

DOBBS: "CROSSFIRE" will begin in just a few minutes. Paul Begala, Tucker Carlson, they are here now with a preview of what we can expect. Gentlemen.

PAUL BEGALA, "CROSSFIRE": Well, Lou, on Capitol Hill today it was a closed-door meeting of the Senate and House committees on intelligence, talking about the failures that led to September 11th. We'll have one of the leading senators on that committee, Senator Fred Thompson, a Republican of Tennessee, to tell us what he can about what went on there, and what we ought to be doing in the future.

And then, the Catholic Church scandal. The bishops are meeting and considering whether a "two strikes and you're out" policy is better than zero tolerance. We will debate that with the leader of the Catholic league.

TUCKER CARLSON, "CROSSFIRE": And if that's not enough scandal for you, Lou -- I suspect it's not -- some members of the American intelligence community say they would have connected the dots, were it not for fears of being accused of racial profiling. Were the PC police partly responsible for the tragedy of September 11th? That's our third, possibly our fieriest debate tonight.

DOBBS: Terrific. Looking forward to it. Sounds fascinating.

Wildfires have forced hundreds of people to evacuate their homes. And those fires have destroyed at least 80 houses in southern Colorado. Up to 700 more homes are at risk as well.

Hundreds of firefighters are now battling the 4,000-acre blaze. A strong cold front has moved through the area. And that's helped efforts to extinguish the fire. But the blaze may have been started by an outdoor barbecue. Officials are still investigating. Officials say it's just 10 to 20 percent contained this evening.

From fires to flooding. Much of the southern half of Chile -- that's right, I said the southern half of Chile -- is underwater. Chile is now suffering the worst flooding in more than a century. A year's worth of rain fell on the capital, Santiago, Monday night alone. Those storms have killed at least nine people and forced 50,000 people from their homes.

Coming up next, the Dobbs report. I'll have thoughts on why so many people are concerned about the public investor being so confused these days. Stay with us.

(COMMERCIAL BREAK) DOBBS: Do you ever get the feeling that a few things aren't adding up these days? For example, a number of experts have said recently, the stock market is falling because investors are confused.

Now, let's see. Accounting firms are making a lot of mistakes in their audits. The SEC is reviewing the financial statements of the 500 largest companies in the country. Forty attorneys general may sue Wall Street firms on behalf of investors. And every, seemingly every, plaintiff's attorney in the country is ready to sue any institution for any failing, for of course, a percentage of the action.

And we're supposed to believe it's the investors who are confused? Investors may well be the only ones who have it exactly right. The public investor has been forced to spend more time trying to figure out who he or she can trust than which stocks to buy. That's well-placed caution, not confusion.

And one hopes that Wall Street, corporate America and the exchanges will act soon, very soon, to fix the way they've been doing business, and earn back the respect and the confidence of investors. And if they don't, Congress will surely step in. And that will surely lead to real confusion.

Those are my thoughts, let's look at yours. Arthur Harris in St. George, Utah writes in: "This constant barrage of inevitable terrorist threats undoubtedly accounts for part of the malaise in the stock market. Let the responsible government agencies quietly go about their work, and let the rest of us get on with our lives."

Alan Penney in Rochester, Michigan writes: "Lou, thanks for your vigilance in examining the structural changes that must take place on Wall Street. The repartitioning of accountants and consultants, bankers and analysts, as well as the regulation of executive pay are all mandatory steps in reestablishing the confidence of investors like me. Convicting some Enron executives for their high crimes against investors wouldn't hurt either."

And finally, Sebastian Wagner in Germany writes: " I think it's an insult to all your European and Asian viewers that their views are never broadcast on your show. Do you think we Europeans don't have an opinion about the things you're discussing? P.S. Where is Mr. Dobbs buying his ties? I really like those disgusting pink ones."

We love hearing from you. E-mail us at moneyline@cnn.com, no matter where in the world you may be. Include your name and address.

From your words to "In Their Words."

(BEGIN VIDEO CLIP)

PERVEZ MUSHARRAF, PAKISTANI PRESIDENT: Let's be very realistic. Any person, any country having nuclear weapons. Obviously, if India says that it's not going to use it, what are they having the nuclear weapons for? So therefore, I think what the argument that I am giving, let us de-nuclearize South Asia. That will really eliminate the scourge, or even the thought of using them. (END VIDEO CLIP)

(BEGIN VIDEO CLIP)

NIRUPAMA RAO, INDIAN GOV'T SPOKESPERSON: The threat of nuclear blackmail, the threat of use of the nuclear option, has been graphically articulated by Pakistan. India has been extremely responsible and restrained in its statements.

And there's not even one occasion when we have talked irresponsibly on this issue. We are committed to a no first use of nuclear weapons and that is our policy. We stand by it, we abide by it.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

REP. JANE HARMAN (D-CA), INTELLIGENCE CMTE.: Secretary Rumsfeld is warning in today's papers that there may well be a second wave of attack. I believe that. I think many of my colleagues believe that too. And we need to keep America safe going forward.

I do want to look backward. I want to understand what went wrong. I want to understand what was broken in the system so we can fix it. But the goal is to fix the system.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP, "THE LATE SHOW")

DAVID LETTERMAN, HOST: Apparently, al Qaeda -- you know, the terrorist network, the bad guys we've been chasing down for the last eight months? Apparently these guys now say that there will be more terror attacks.

That's right. It's a warning. They say there will be more terror attacks. And I'm wondering, would somebody here like to go tell the FBI?

(LAUGHTER)

(END VIDEO CLIP)

DOBBS: That's MONEYLINE for this Tuesday evening. Thanks for being with us. For all of us here, good night from New York.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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